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A

Any debts or damages incurred by a firm organized as a sole proprietorship are:

A. The responsibility of the owner.

B. Limited to the amount the owner has invested in the firm.

C. Paid for out of a reserve contingency fund that sole proprietors are required by law to set up.

D. Normally covered by liability insurance.

D

Selma owns a roofing business. She enjoys being her own boss, but her satisfaction comes at a price. Her days are filled with organizing the activities of her employees and soliciting new customers. She often misses activities with friends and family because of the obligations of running her own business. She also knows that she has unlimited personal liability for any of her firm's debts. Selma's business is organized as a(n):

A. Joint venture.
B. C corporation.
C. S corporation.
D. Sole proprietorship.

B

A good reason why partners should spell-out the details of their partnership arrangements in writing is:

A. The partnership is not a legally recognized business unless they do so.

B. A written agreement will help reduce misunderstandings and disagreements among the partners.

C. Putting the agreement in writing will limit the liability of each partner to a specified level.

D. Doing so will make it easier to convert the business to a corporation at a later date.

D

Travis has agreed to invest $16,000 in a partnership with his sister and brother-in-law. He does not intend to actively work in the partnership, nor does he wish to risk any of his own assets other than the $16,000 he initially invests. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Travis is a ______________ in this partnership.

A. General partner
B. Preferred stockholder
C. Secondary partner
D. Limited partner

D

Compared to the C corporation, the limited liability company is an attractive form of business ownership because:

A. Even though it is a little more expensive to form, it has a longer life than the C corporation.

B. A limited liability company permits one owner to own all the stock of the company, whereas a C corporation requires several owners.

C. Once formed, the limited liability company is a legal form of business ownership, worldwide, whereas the C corporation must file for corporate status in each nation it elects to do business.

D. Once formed, the limited liability company does not require the firm to hold annual meetings, and has the option to avoid double taxation.

B

Dane is a stockholder in SmallWorld, Inc., a C corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld goes bankrupt, Dane and the other stockholders will:

A. Be personally responsible for all remaining debts.
B. Lose their investment but nothing else.

C. Be entitled to full reimbursement of any investment losses.

D. Automatically qualify for federal reimbursement for any losses suffered by the firm.

C

Trans Globe Airlines is in talks with Royal Blue Airlines, a financially troubled rival. The firms believe the merger will create a stronger company that can offer travelers more flights to a wider variety of destinations. This proposed merger is an example of a:

A. Conglomerate merger.
B. Leveraged buyout.
C. Horizontal merger.
D. Joint venture.

C

When investors successfully "take a firm private," the firm's stock is:

A. Converted into bonds.
B. Converted into cash.
C. No longer sold to investors on the open market.
D. Pledged as collateral to its bondholders.

B

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Daggie's:

A. Is offering investors the opportunity to form limited partnerships.
B. Is a franchisor.
C. Creates private subsidiary companies.
D. Offers a tax-free investment potential.

B

Which of the following statements about farm cooperatives is most accurate? Farm cooperatives have:

A. Declined in importance in recent years.
B. Become a major force in American agriculture.
C. Run afoul of U.S. antitrust laws in recent years.
D. Increased in number, but decreased in size in recent years.

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